Netflix World Domination

Netflix starts the year with a huge step towards world domination. At the Consumer Electronics Show in Las Vegas, the online video streaming company surprised many by announcing it now offers its services in more than 190 countries. From previously 60 countries, almost all countries are now covered. Except for the Big One: China. Nevertheless, almost 550 million households with broadband connection across the globe now can subscribe to access the famous library of original and licensed content. From now on, Netflix online videos will also feature localization with Korean, Arabic and Simplified/Traditional Chinese language added. Obviously, due to US law Netflix will not offer its services in North Korea, Syria and Crimea.

Expansion to China expected later this year

Adding China to its world service map is on top of Netflix CEO Reed Hastings’ agenda. The company plans to get access to the Chinese market later in 2016. CEO Hastings said that they’re now in the relation-building phase with partners and the government. A presence in China would add 179 million households to Netflix’ global reach of a total potential of 730 million broadband households. Currently 70 million US households are subscribed to the online streaming service. Mr. Hastings expects to reach a comparable figure for subscriptions outside the US before end 2017. In the CES presentation, the company guided towards a global break-even operation in 2015-2016 and ‘material profits’ in 2017 and beyond. A lot of analysts think this is achievable, since tripling its subscriber base shows the company is well ahead of its initial global plans.

Hurdles remain for Netflix

The increased number of potential subscribers evidently raises estimated revenues. But the freshly added countries do not automatically mean we’ll see a surge in subscription numbers. For a number of countries, important hurdles remain. Though 189 million broadband households are now added to the company’s reach, Netflix subscriptions depend on a number of other issues. It’s pricing for the new countries is comparable to current plans, which may be expensive for a number of freshly added emerging countries. In addition, customers of these countries might not be satisfied with current available languages. Another problem is the payment for subscription. Most likely, this will be through credit card, and in a lot of countries, only a fraction of the population owns a credit card. Also in a large number of Asian countries, such as Indonesia and India, there’s a wide availability of illegally available content, for example downloads, pirated DVDs & blue rays and free streaming services.

Next to that, some of Netflix’ current content may not appeal to certain countries. While the company plans to add licensed and original content in the next years, this comes at significant costs. The company plans to spend $6 billion on content in 2016 alone, while revenues are estimated to reach $8.7 billion this year (Thomson Reuters median).

Netflix is currently the only online streaming service with a global reach. But as we noted earlier, competition is expected to intensify in the near future. If YouTube adopts a global subscription-based service, this will form a huge threat, since the company is famous across the globe, unlike Amazon, Hulu etc.

Netflix shares may benefit

Overall, the recent announcement of global expansion is welcome news for Netflix shareholders. The 9% jump on the day of the news is justified. The increased subscriber base will definitely drive expected revenues higher and a number of analysts will revise financial targets higher. Barring other market factors, this will support the share price of Netflix. An additional boost may come if the company is able to add China sooner-than-expected to its global service map.

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